INCOME TAXES

The Company determines its deferred tax assets and liabilities based upon the difference between the financial statement and tax bases of its assets and liabilities calculated using enacted applicable tax rates. The Company then assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance, when recorded, are included in the provision for income taxes in the consolidated financial statements.

The Company’s unrecognized tax benefits of $3,419, $3,530, and $3,746 as of December 31, 2013, 2012, and 2011, respectively, are uncertain tax positions that would impact the Company’s effective tax rate if recognized. The Company is periodically engaged in tax return examinations, reviews of statute of limitations periods, and settlements surrounding income taxes. The Company does not anticipate a material change in unrecognized tax benefits during the next twelve months.

The Company’s uncertain tax benefits, and changes thereto, during 2013, 2012, and 2011 were as follows:



	2013			2012			2011
Balance at January 1,	$	3,530		$	3,746		$	3,843
Additions based on tax positions related to current year	516			600			593
Additions based on tax positions of prior years	—			—			—
Reductions for tax positions of prior years	(567		)	(570		)	(579		)
Settlements	(60		)	(246		)	(111		)
Balance at December 31,	$	3,419		$	3,530		$	3,746

The Company classifies interest expense and penalties as part of its provision for income taxes based upon applicable federal and state interest/underpayment percentages. The Company has accrued $1,220 and $1,195 in interest and penalties in its statement of financial position at December 31, 2013 and 2012, respectively. Interest was computed on the difference between the provision for income taxes recognized in accordance with U.S. GAAP and the amount of benefit previously taken or expected to be taken in the Company’s federal, state, and local income tax returns.

The Company’s federal income tax returns for the tax years 2008 and forward are available for examination by the United States Internal Revenue Service (“IRS”). The IRS conducted its field examination of the Company's 2008 and 2009 federal income tax returns. On May 1, 2013, the Company received the revenue agent's report, commonly referred to as a "30-day letter". The Company disputes the proposed adjustments raised in the revenue agent's report, has filed a protest, and awaits conclusion of the appeals process. The Company continues to believe its reserve for uncertain tax benefits is adequate at December 31, 2013. The Company has agreed to extend its federal statute of limitations for the 2008 through 2010 tax years until December 31, 2014.

In addition, an examination by the IRS of the Company's 2010 and 2011 federal income tax returns commenced in April 2013. The Company received the related 30-day letter on February 10, 2014. The Company disputes the proposed adjustments, which flow from the earlier disputed findings described in the preceding paragraph, and has filed an additional protest. The Company has received the revenue agent's rebuttal and is currently awaiting appeal proceedings.

Proposed adjustments in connection with both audits are pending appeal.

The Company’s state income tax returns for 2009 through 2013 remain subject to examination by various state authorities with the latest period closing on December 31, 2018. The Company has not extended the statutes of limitations in any state jurisdictions with respect to years prior to 2009. Such statutes of limitations will expire on or before December 31, 2014, unless extended.

A reconciliation between the “statutory” federal income tax rate and the effective tax rate in the consolidated statements of income is as follows:



	For the Years Ended December 31,
	2013		2012		2011
“Statutory” federal tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	3.6		3.9		3.6
Other, net	1.2		1.6		(0.1	)
Effective tax rate	39.8	%	40.5	%	38.5	%

The components of income before taxes and the provision for income taxes recorded in the consolidated statements of income are as follows:



	For the Years Ended
Components of Income before Taxes	2013		2012		2011
Domestic	$	127,858	$	133,300	$	121,770
Foreign	7,093		12,148		11,419
Income before taxes	$	134,951	$	145,448	$	133,189



	For the Years Ended
Components of Income Tax Provision	2013			2012		2011
Current expense
U.S. Federal	$	47,790		$	38,642	$	41,052
State	7,066			6,848		6,343
Foreign	2,217			3,366		3,579
Total current expense	$	57,073		$	48,856	$	50,974
Deferred (benefit) expense
U.S. Federal	$	(2,983	)	9,090		246
State	(458		)	786		178
Foreign	45			118		(100		)
Total deferred (benefit) expense	$	(3,396	)	$	9,994	$	324
Total income tax provision	$	53,677		$	58,850	$	51,298

Deferred income taxes are provided based upon differences between the financial statement and tax bases of assets and liabilities. The following deferred tax assets (liabilities) were recorded at December 31:



Assets (Liabilities)	2013			2012
Postretirement benefits	$	29,260		$	32,257
Payroll accruals	3,114			3,095
Bad debt reserves	2,094			2,178
Other deferred tax assets	9,820			10,359
Pension	41,682			55,665
Inventory	4,597			3,174
Subtotal	90,567			106,728
less: valuation allowances	(279		)	(285		)
Deferred tax assets	90,288			106,443
Fixed assets	(33,988		)	(32,999		)
Computer software	(3,775		)	(3,708		)
Other deferred tax liabilities	(1,868		)	(2,184		)
Deferred tax liabilities	(39,631		)	(38,891		)
Net deferred tax assets	$	50,657		$	67,552

Deferred tax assets included in other current assets were $5,936 and $3,678 at December 31, 2013 and 2012, respectively. Deferred tax assets included in other non-current assets were $45,135 and $64,260 at December 31, 2013 and 2012, respectively. Deferred tax liabilities included in other current liabilities were $414 and $386 at December 31, 2013 and 2012. The Company’s deferred tax assets include foreign net operating losses of $232 and $285 as of December 31, 2013 and 2012 that expire in 2024. The Company’s deferred tax assets also include state net operating loss carryforwards of $1,165 and $1,821 as of December 31, 2013 and 2012, respectively, that expire between 2014 and 2030. The Company's valuation allowance against deferred tax assets was $279 and $285 for the year ended December 31, 2013 and 2012, respectively. Due to uncertainties regarding the utilization of the Company's foreign and state net operating losses, a valuation allowance has been applied against the total deferred tax benefit at December 31, 2013.

The Company has undistributed earnings of non-U.S. subsidiaries of approximately $59,388 and $54,440 as of December 31, 2013 and 2012, respectively. The Company has not made a provision for U.S. federal and state income taxes on these accumulated but undistributed earnings, as such earnings are considered to be indefinitely reinvested outside the U.S.